News  Alam Maritim Resources Bhd (ALAM) announced that it had been awarded an extension contract from ExxonMobil Exploration and Production Malaysia Inc (EMEPMI) for the provision of one unit accommodation barge.

 The duration of the extension is 12 months with a value of approximately RM58.8m.

Comments  The contract value implies a daily charter rate (DCR) of c.RM160.2k. This is higher (c.14.8%) compared to the DCR for the initial contract of c.RM139.5k (initial contract was awarded in May-12).

 We are positive on the firmer charter rate and the contract extension, but it was largely expected as the demand for accommodation barges remains strong.

Outlook  Currently the company is bidding for Inspection, Repair and Maintenance (IRM) and pipe laying contracts.

 To enhance its chances for contract wins, ALAM does not rule out asset acquisitions via joint venture for the inspection, repair and maintenance segment (i.e. diving support vessels).

Forecast  Whilst our FY14 DCR assumptions for the accommodation barge are c.RM140k, we are maintaining our forecasts for now pending the release of ALAM’s 4Q13 results which should be within Feb.

Rating Maintain OUTPERFORM

Valuation  Our target price of RM2.07 is based on unchanged CY14 PER of 15x.

 Our ascribed PER is c.15% discount to the 1.5 standard deviation forward level of 17.2x from 2006-2008. We believe the discount is justifiable due to uncertainties with regards to its underwater division that could yield lumpy earnings going forward.

Risks to our Call (i) Lower than expected OSV utilisation

 (ii) Further continuation of its sluggish underwater services division works.

Source: Kenanga